Government consults on debt management firms

by Gill Montia

Story link: Government consults on debt management firms

The BBC has reported that the Government is launching a consultation process on the debt management industry, a sector that is growing rapidly but remains largely unregulated.

Debt management firms negotiate with lenders on behalf of clients in financial difficulties and outcomes can include Individual Voluntary Arrangements or extended and reduced repayment terms.

However, the sector has been heavily criticised by consumer groups and the Ministry of Justice for misleading clients and charging exorbitant fees.

For example, some firms have claimed that credit agreements taken out before April 2007 can easily be written off under the 1974 Consumer Credit Act.

In reality, the absence of certain details in an agreement under the Act could potentially make an agreement unenforceable; however most are likely to be valid.

According to the BBC, the consultation may result in the introduction of a new code of practice for companies operating in this area or could bring debt management firms under a formal system of regulation.

Earlier this year, the Ministry of Justice issued new guidance on fee-charging debt management firms, urging consumers to seek independent advice before engaging their services.